It's back! 'Audit the Fed' launched

Texas Rep. Ron Paul, the longtime advocate of Congress taking back control of U.S. monetary policy from the Federal Reserve, may have retired, but his goal of a full audit of the central banking authority survives.

U.S. Rep. Paul Broun, R-Ga., today announced that he has relaunched Paul’s “Audit the Fed” proposal and he will be pursuing the Texas congressman’s goal.

“I first want to thank Congressman Ron Paul for his tireless and unwavering dedication to auditing the Federal Reserve,” Broun announced. “His efforts paid off when the House passed his legislation with overwhelming bipartisan support during the 112th Congress.

“This accomplishment in itself marked the most significant stride made toward bringing real transparency to the nation’s monetary policy. Unfortunately, as has become the status quo, the do-nothing Senate failed to act on the bill before the end of the 112th Congress, causing it to flat line,” he said.

Broun’s proposal is the same as Paul’s, for a “full audit by the U.S. Comptroller General of the Board of Governors of the Federal Reserve and the Federal Reserve banks.”

He said he now is circulating the bill among House members to allow them to come aboard the campaign.

“Moving forward, my plan is to pick up right where Congressman Paul left off,” Broun said. “Our economy is far from recovering, and the recent fears regarding the potential impacts of the ‘fiscal cliff’ and its aftermath prove that the American people must continue to demand transparency from the entity charged with ensuring stable economic and monetary policy.

“While measures requiring partial audits of the Fed have become law in recent years, it’s clear that current policy does not go far enough. I am honored to carry on one of Rep. Paul’s legacies, as well as his efforts to advocate for a full audit of the Fed, which remains as active – and as closely guarded – as ever.”

Broun said his version of the bill is identical to Paul’s H.R. 459, which was approved in the House 327-98 with 274 cosponsors.

Paul battled for transparency from the Fed throughout his career and just weeks ago scheduled a hearing to examine the Fed’s operations.

It was Paul’s Domestic Monetary Policy and Technology Subcommittee that held a hearing on the Fed’s practice of loaning money to large banks and others essentially for no interest at all.

“The Federal Reserve is relentless in pursuing a policy of zero interest rates, as manifest by their decision last week to engage in another round of quantitative easing and keep the federal funds rate at zero for another three years,” Paul said in preparation.

Fed Chairman Ben Bernanke announced just days ago another round of money printing by the U.S. government.

The central bank’s objective is to keep interest rates low to trigger more spending and more hiring. During Obama’s first term, lowering interest rates was the Fed’s primary tool to revive the economy, but it’s become ineffective, because rates are near zero.

Paul for years advocated a full audit of the Federal Reserve, which routinely shrouds its actions in secrecy.

“The Fed is intent on ignoring that their policy of low interest rates in the past brought us the financial crisis of 2008 and their zero interest rate policy of today is prolonging the agony while sowing the seeds for a much larger crash in future,” Paul had said. “Their manipulation of interest rates – essentially price setting – can only ever have destructive effects on the American economy. Artificially low interest rates continue to cause malinvestment and misallocation of resources throughout the economy. Savers and investors suffer from negative real interest rates, while the federal government takes advantage of the Fed’s zero interest rate policy to run up gargantuan fiscal deficits.

“These problems cannot and will not be remedied until the Fed stops manipulating the price of money,” he said.

Paul long argued that the Federal Reserve simply is illegal. Some of his concerns have been based on Article 1, Section 8 of the Constitution, which assigns to Congress the right to coin money.

There is no mention in the Constitution of a central bank, and it wasn’t until the Federal Reserve Act of 1913 that the Fed was created.

Paul previously has said: “Throughout its nearly 100-year history, the Federal Reserve has presided over the near-complete destruction of the United States dollar. Since 1913 the dollar has lost over 95 percent of its purchasing power, aided and abetted by the Federal Reserve’s loose monetary policy.”

And he proposed repeatedly the idea of auditing the Fed to determine exactly what it has been doing and then begin making corrections. With a book titled “End the Fed,” he’s made no secret of his ultimate goal.

That the Fed is at least partly to blame for the financial problems that have developed in the U.S. seems not to be in dispute.

Bernanke said it was the Fed that caused the Great Depression. It was the longest and worst depression ever experienced by the industrialized Western world. While originating in the U.S., it ended up causing drastic declines in output, severe unemployment and acute deflation in virtually every country on earth.

At a Nov. 8, 2002, conference to honor economist Milton Friedman’s 90th birthday, Bernanke, then a Federal Reserve governor, gave a speech at Friedman’s old home base, the University of Chicago.

After citing how Friedman and a co-author documented the Fed’s continual contraction of the money supply during the Depression and its aftermath – and the subsequent abandonment of the gold standard by many nations to stop the devastating monetary contraction – Bernanke added:

Before the creation of the Federal Reserve, Friedman and [Anna] Schwartz noted, bank panics were typically handled by banks themselves – for example, through urban consortiums of private banks called clearinghouses. If a run on one or more banks in a city began, the clearinghouse might declare a suspension of payments, meaning that, temporarily, deposits would not be convertible into cash. Larger, stronger banks would then take the lead, first, in determining that the banks under attack were in fact fundamentally solvent, and second, in lending cash to those banks that needed to meet withdrawals. Though not an entirely satisfactory solution – the suspension of payments for several weeks was a significant hardship for the public – the system of suspension of payments usually prevented local banking panics from spreading or persisting. Large, solvent banks had an incentive to participate in curing panics because they knew that an unchecked panic might ultimately threaten their own deposits.

It was in large part to improve the management of banking panics that the Federal Reserve was created in 1913. However, as Friedman and Schwartz discuss in some detail, in the early 1930s the Federal Reserve did not serve that function. The problem within the Fed was largely doctrinal: Fed officials appeared to subscribe to Treasury Secretary Andrew Mellon’s infamous “liquidationist” thesis, that weeding out “weak” banks was a harsh but necessary prerequisite to the recovery of the banking system. Moreover, most of the failing banks were small banks (as opposed to what we would now call money-center banks) and not members of the Federal Reserve System. Thus the Fed saw no particular need to try to stem the panics. At the same time, the large banks – which would have intervened before the founding of the Fed – felt that protecting their smaller brethren was no longer their responsibility. Indeed, since the large banks felt confident that the Fed would protect them if necessary, the weeding out of small competitors was a positive good, from their point of view.

In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn. …

History records that in 1913 President Woodrow Wilson approved the Federal Reserve Act but later reflected that his actions “unwittingly ruined my country.”

Wilson said that since the U.S. system of credit is concentrated in the hands of a few, “we have become … one of the most completely controlled and dominated governments in the civilized world.”

Paul was named WND’s “Man of the Decade” for his work on the audit plan and other efforts.